Although EAC presents advantages by taking into account the lifetime of the project, my professor recommends using NPV instead of EAC. Can anyone explain why NPV is considered superior to EAC?
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I'd ask your professor to explain his/her reasoning. It seems like EAC is more open to hand-waving than NPV. With NPV, you're evaluating the here and now: adding up all of the cash flows. EAC uses estimated lifespan, estimated maintenance, etc. However, if you don't own the asset yet, EAC can be useful because it gives you a framework to calculate expected annual costs of owning the asset. If you don't have cash-flow figures yet, you obviously can't use them. |
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